July 22, 2022

You have previously disclosed margin rankings between license-based, asset-based and transaction-based but also have various businesses in different stages of maturity. How should we think about margins both today and long-term for key products and services such as PitchBook, DBRS Morningstar, Morningstar Data, Morningstar Direct, Investment Management, Workplace Solutions, Morningstar Advisor Workstation, Morningstar Indices, or Sustainalytics? 

While we don’t disclose margins for individual product areas, we discussed the relative margin rankings of different revenue categories at our 2020 Annual Shareholder Meeting.If we looked at performance for the year ended December 31, 2021, our licensed-based areas (in aggregate) carried the highest adjusted operating margins, followed by our transaction-based areas and then our asset-based areas.

Licensed-based products continue to offer, in aggregate, the highest margins, reflecting the operating leverage in data, research, and software subscription sales. Licensed-based revenue accounted for 66.6% of our consolidated revenue in 2021 and included sales generated by products including PitchBook, Morningstar Data, Morningstar Direct, Morningstar Advisor Workstation, and Morningstar Sustainalytics. Within this group, we are investing particularly heavily in PitchBook and Sustainalytics.

Our transaction-based margins are, in aggregate, below those offered by licensed-based products and the company average. This category includes DBRS Morningstar, an area of significant investment.

Asset-based revenues have the lowest level of aggregate margins across our product groupings. These products are generally priced as basis points on assets under management and see positive leverage as asset values appreciate and the reverse during periods of market decline. Asset-based products represented 15.6% of our 2021 consolidated revenue and include revenue generated by Wealth Management (including Investment Management), Workplace Solutions, and Morningstar Indexes products.The Investment Management and Index areas have lower margins reflecting the significant investment we are making to drive growth and scale.Notably, as we build important capabilities in Wealth (including in direct indexing and our TAMP), our goal is to grow AUM and our revenue per advisor over time.Workplace, with our established managed account offering and steady growth profile, has the highest product area margins in the grouping and also ranks among the highest margin areas in Morningstar.

We will include an update on our relative margin profile across different revenue lines at our next Annual Shareholder Meeting.

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